Retirees across the country have felt the pinch of cost-of-living increases. Retirement has looked different these past two years, from rising prices at the grocery store to increased interest rates. While there are many ways to navigate rising costs, one way is to get a handle on your debt.
Managing debt effectively is one way to relieve some of that financial pressure, especially in retirement. In honor of Credit Education Month this March, we’ve compiled a few tips for managing debt in retirement.
1. Revisit the Impact of Credit
Through the years, we have all been impacted by credit. Whether you were buying a car, a house or a business, your credit score was at play. Understanding your credit score and how it impacts your life is an important building block in your financial picture.
There are a few important factors to consider when revisiting the impact of your credit including insurance costs, the impact on your estate and even future credit endeavors.
In many cases, higher credit scores can have a positive impact on your life. According to Bankrate.com, on average, drivers with poor credit pay 118% more for car insurance than those with excellent credit. In addition, higher credit scores also translate to lower interest rates for future credit initiatives.
On the flip side, unpaid debt left after your death can hurt our estate. Any debts left behind, are paid for by the estate, reducing funds left to your family members.
Finding ways to manage debt in your golden years can have a meaningful impact on your day-to-day living and future.
2. Consolidate
Consolidation is one way to streamline payments and manage debt in retirement. By definition, consolidation is a process where a borrower takes out a new loan with more favorable terms and uses it to pay off previous individual debts.
One advantage to consolidation is you can secure a lower interest rate, opening up more funds to pay off principal balances. Sometimes a lower monthly payment can be formulated as well. Depending on your current financial goal or challenge, consolidation could be a strategic option to consider.
3. Consider the Avalanche or Snowball
Paying off your remaining debt is an impactful method of opening up income in retirement. There are two mainstream ways to get rid of your debt quickly: The avalanche method and the debt snowball method.
The debt snowball method: Focuses on paying off the smallest debt first to gain traction. As you pay off each debt, roll those funds into the next largest debt
The debt avalanche method: Focuses on the highest interest rate and works downward to have the highest interest impact
Give one of these a try to reduce some of your expenses in retirement.
4. Avoid Taking on New Debt
One of the greatest advantages of paying off debt is the increase in your net worth. When calculating net worth, what you owe works against you. Ridding yourself of debt opens up space for more disposable income. Avoiding more debt creates more space to spend your hard-earned money on things or experiences that you value.
5. Celebrate Progress
Celebrate your milestones as you reach them. Whether you’ve officially created a debt management budget or just secured a lower interest rate, give yourself some credit. Honoring your accomplishments keeps the ball rolling and encourages your financial progress giving you hope and optimism.
Bankers Life is Here
Bankers Life has your back as you tackle debt and build the retirement you’ve been hoping for. Continue to follow Bankers Life for even more ways to master your finances. Visit us at BankersLife.com to learn more.
